Mutual funds are risky. Some of us are old enough to remember 2008 when mutual funds return negative 40% and the Dow Jones hit a 10 year low.
mortgage paydown question
- Thread starter destillat
- Start date
All investments carry some kind of risk and mutual funds are no exception. Mutual funds are just a basket of investments that contain things like equities (stocks), government or corporate bonds, money market, indices (TSX 60), etc. What's inside the funds determines the relative level of risk i.e funds containing 100% stocks would be relatively riskier than funds containing 100% bonds.
I would say that all investments are risky if you do not understand how they work, the costs of holding them (all funds have management fees) and what is inside them. There are many reasons for and against investing in any stock, bond, or fund. It just depends on what your objective is.
A good website for financial terminology is www.getsmarteraboutmoney.ca. They clearly describe how all the various financial products work.
mutual funds (stocks, really) are something you play for the long haul (decades)
you could've bought dirt cheap in '08, and by now, you'd be rollin' in it; lotsa folks actually scored big during the US recession (more specifically, the eventual recovery)
Mikehorn
Govt Designated Pervert
mutual fund returns are not guaranteed, the interest rate on your mortgage IS (i.e. YOU have to pay it)
imo, i can't see getting that level of performance on a mutual fund in the long term, unless maybe it's a hedge fund
(and if you're investing in a hedge fund, ummm, why would you be asking money questions here?)
i suspect if the OP is really getting 10-13%, that's due to the up-market ... what happens in the next crash?
You have to do many other things besides investing for the long term to minimize risk. If you held onto Nortel from 70's until the 2000's, you would have lost everything. Risk depends on so many factors that it's nearly impossible to eliminate it entirely. It wasn't so long ago that airlines like Air Canada were considered 'blue chip' or stable companies. Fast forward to today and most airlines including Air Canada are pretty lousy investments.
If you want to minimize risk, then you have to invest in different sectors (energy, technology, transportation, consumer goods, etc.), asset classes (stocks, bonds, GIC's, savings, real estate, etc.), and different areas of the world. Don't count on dividend stocks, corporate or government bonds either. Dividends can be suspended, companies can go bankrupt, and governments can default. Bonus points if you open your own business or buy real estate because you have greater control over what happens to your hard earned dollars. You have no control at all over what happens to paper investments.
IMO never invest money you can't afford to lose. Never play with money that you need to buy basic necessities with such as groceries, mortgage / rent, or education money. I knew one guy that lost out on a home purchase because he was counting on Nortel stock to keep going up in price.
No prob. There's lots of unbiased investing information out there. Globeinvestor.com and The Motley Fool (fool.com) also have some good investing articles too.
There are a couple of good posts in this thread but most are inaccurate or not well thought out.
My question to the OP is what institution are you currently getting prime less 0.6% for a variable rate mortgage? Is this a closed or open mortgage? What is the term of your mortgage?
Best advice here.
The markets are a bit like going to Vegas, sure you can win, but you have to wonder how they keep building those fancy hotels with all the bright lights. Somebody is paying for all that, and odds are its going to be you.
I was under the impression that if you borrow to invest in something that will provide you with income, then come tax time you can deduct the interest you pay on the loan. I know of a couple of people that once they paid off their houses, they took a new mortgage which they then invested. They said that it's essentially saving up to invest but they get the advantage of investing a large amount right off the bat vs. saving up to it.
They're both pretty well off already, and pay for financial advice so I believe it. Now I just need money to pay off my mortgage......
They're both pretty well off already, and pay for financial advice so I believe it. Now I just need money to pay off my mortgage......
I believe you're right, but there's a lot of restrictions. The CRA always finds a way to get it's hooks into us. You have to be very careful when borrowing (using leverage) because your income source (dividend, interest, rent, etc.) needs to service the debt regardless of how the investment performs. You still have to pay the debt when it's not doing well. Again, don't bet your livelihood, house, kids education or grocery money on a leveraged investment. Your friends are already well off so they have less to lose. Then again, don't put too much faith in how "well off" they look because they could be neck deep in debt and you would never know.
Let's analyze risk. Investing in a Canadian issue involves 3 types of risk:
1 The company. Growth potential? Competent management? etc
2 The sector. So how is the business of selling mortgages/typewriters/pharaceuticals/widgets doing?
3 The universe. How is the economy doing?
If you buy a foreign issue:
4 The currency. How will local currency do against the eg US$ or euro?
Lots of information to analyze before you invest your disposable income.
if you are significantly leveraged via a mortgage then you may want to decide how much a shock to the interest rate would hurt you. there are so many people who are living on the boundaries of thier means - and even a small bump in rates will signifcantly hurt thier lifestyle. for these people I think there is a strong case for paying down debt even when the current rate is low.
True, but no matter how much information or how hard you analyse you have to put money at risk when you invest. You can minimize that risk by knowing all the things that you listed, but the risk is not zero. Even "guaranteed" investments carry some risk in that your investment earns practically nothing while you hold it.
Getting accurate information is problematic today because there are wildly different viewpoints on how a company, industry or the economy is doing at any given point in time. There will always be optimists in a crowd of doom-sayers and vice versa. That can cause people to have a 'knee-jerk' reaction and send the value of stocks to go down or up for no reason at all. Just remember that it's really easy to share negative or good news about a company these days.
You want guaranteed?
Buy a gov't bond and get 2% . Take away inflation you may as well have the $$ in a safety deposit box.
You want real return, invest it with my criteria listed above. NOTHING IS GUARENTEED. No one can predict airliners flying into skyscrapers or tsunamis hitting a nuclear plant or Alberta being flooded HOWEVER some things can be reasonably gestimated with better returns than a gov bond.
Open an InvestorLine account for your tfsa and invest it. $10 a trade. Time value of money.
Don't they teach this stuff in high school?
Don't they teach this stuff in high school?
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